Cannabis stocks caught fire Wednesday morning after reports surfaced that President Donald Trump is ready to sign an executive order rescheduling marijuana from Schedule I to Schedule III. For an industry that's been operating under a crushing tax burden for years, this news hit like a breath of fresh air.
The prospect of rescheduling sent a wave of optimism rippling through the sector. Investors weren't just excited about optics or symbolism. They were reacting to the potential removal of one very specific, very painful piece of the tax code: IRS Section 280E.
The 280E Problem
Here's the situation cannabis companies have been dealing with for years. Section 280E of the tax code prohibits businesses from deducting ordinary business expenses from income associated with trafficking Schedule I or II substances. That means no deductions for rent, payroll, marketing, or any of the normal costs of doing business.
The result? Effective tax rates that frequently top 70%. That's not a typo. Cannabis operators have been paying taxes on their gross revenue, not their actual profits, which has made it nearly impossible for many to turn a profit even when their underlying business is doing well.
Rescheduling marijuana to Schedule III would lift this burden entirely. For many cannabis businesses, it could mean profitability for the first time.
"It's an absolute game-changer," Boris Jordan, executive chairman of Curaleaf Holdings, told the Wall Street Journal in 2024.
"It's something we've been waiting for, for the better part of 10 years," Jordan added.
What Schedule III Doesn't Mean
Before anyone gets too carried away, experts are quick to point out that Schedule III is not full legalization. The move would ease research restrictions and eliminate the 280E tax nightmare, but it doesn't automatically erase federal criminal penalties for recreational use.
In other words, marijuana would still be illegal under federal law. The awkward conflict between federal prohibition and state-level legalization would continue. You'd just have a situation where cannabis businesses can finally deduct their expenses like any other company, even though they're technically still operating in a federally illegal market. It's messy, but it's progress.
The Market Response
Cannabis stocks were moving on above-average trading volumes Wednesday as investors awaited official word from President Trump. The sector was buzzing across social media, with traders piling into both ETFs and individual names.
Investors looking to track the sector can monitor the AdvisorShares Pure US Cannabis ETF (MSOS) along with Canadian heavyweights like Tilray Brands, Inc. (TLRY), Canopy Growth Corp. (CGC), Aurora Cannabis Inc. (ACB), Cronos Group, Inc. (CRON), and SNDL Inc. (SNDL).
For an industry that's spent a decade operating under a tax structure designed to punish drug traffickers, the prospect of Schedule III rescheduling represents a fundamental shift in how these businesses can operate. Whether Trump actually signs the order remains to be seen, but the market is clearly betting on change.
